Thursday, August 15, 2013

The Eight Circuit recently upheld a district court
decision dismissing a group of suit against the U.S. Department of Agriculture (“USDA”)
on the grounds that the plaintiffs did not exhaust their administrative
remedies. In a case before the Honorable Raymond Gruender, Bartlett v. U.S.
Dept. of Agric., 716 F.3d 464 (8th Cir. 2013), thirty-eight individuals and
entities who farm corn and soybeans in several counties in Iowa (collectively,
the “Producers”) brought action against federal and state agencies and
officials, alleging that defendants used an improper price-election figure when
calculating payments for which the farmers allegedly were eligible under the Supplemental
Revenue Assistance Payments Program (SURE Program). The defendants are the USDA;
the Farm Service Agency (“FSA”); the Farm Service Agency for the State of Iowa
(“Iowa FSA”); Secretary of Agriculture Thomas J. Vilsack; Acting Administrator
of the Farm Service Agency, Bruce Nelson; and Executive Director of the Iowa
Farm Service Agency, John Whitaker (collectively, the “Government”). The USDA,
through its division the FSA, implements the SURE Program at the federal level.

Congress created the SURE Program through the
Food Conservation and Energy Act of 2008.
The FSA is responsible for adopting regulations to administer the
program. The SURE Program provides disaster assistance payments to eligible
producers for losses in crop production or quality resulting from a natural
disaster. Under the SURE Program, eligible producers may receive sixty percent
of the difference between the disaster assistance program guarantee (“SURE
guarantee”) and the total actual revenue of the farm. Pursuant to a statutory
formula, the SURE guarantee is equal to 120 percent of the product of three
factors, one of which is the “price election for the commodity elected by the
eligible producer” (“price election”). FSA regulations define “price election”
as “the crop insurance price elected by the participant multiplied by the
percentage of price elected by the participant.” State committees, such as the
Iowa FSA, and local county committees are responsible for administering FSA
programs on the local level. As part of their responsibilities, these FSA
subdivisions use federal and statutory formulas to calculate and issue SURE
Program payments under the supervision of the FSA.

This case was an issue of administrative
remedies before seeking a federal court’s review. A SURE program participant
may seek administrative review of certain adverse county committee
determinations by requesting reconsideration by the county committee, appealing
to the state committee, requesting reconsideration by the state committee,
agreeing to mediation, or appealing to the USDA National Appeals Division
(“NAD”). The NAD is a separate subdivision within the USDA and is independent
of all other USDA agencies and offices, including local department officials.
The Secretary of Agriculture appoints the Director of the NAD and the NAD
Director makes the final administrative decision as to whether an agency
decision is appealable. Only “final determination[s]” by the NAD are
“reviewable and enforceable” by district courts.

Yet under the statutory framework, not all
county committee decisions are eligible for administrative review. By
regulation, neither the FSA nor the NAD has the authority to review matters of
“general applicability.” The relevant FSA regulations state that unappealable
county committee determinations include decisions regarding:

“(1)
Any general program provision or program policy or any statutory or regulatory
requirement that is applicable to similarly situated participants; [or] (2)
Mathematical formulas established under a statute or program regulation and
decisions based solely on the application of those formulas.” 7 C.F.R. §
780.5(a).

The regulations provide both the State
Executive Director and the NAD Director with the authority to determine whether
an adverse county committee decision is appealable. However, the State
Executive Director's determination is not a final agency action; rather, it “is
considered by FSA to be a new decision.” So, only the NAD Director has the
final authority to determine whether an FSA decision falls into the categories
of issues that are eligible for administrative appeal, and only a final
decision of the NAD is reviewable by a district court.

The Producers each submitted an application
for a SURE Program payment for the 2008 crop year. The dispute in this case
centers on the price election figure that the county committees used to
calculate the Producers' SURE Program payments. Specifically, the Producers
alleged that the price election should have been determined by using the price
election figure in each of their individual crop insurance policies, rather
than the price election figures established by the USDA's Risk Management
Agency (“RMA”). The Producers argued that the county committees' decision to
use the RMA price election figures resulted in SURE Program payments that were
erroneously low, and in some cases, zero.

The Court reviewed this case de novo and first addressed whether the
exhaustion statute was jurisdictional or not. The applicable statute, 7 U.S.C.
§ 6912(e), provides that “a person shall exhaust all administrative appeal
procedures established by the Secretary or required by law before the person
may bring an action in a court of competent jurisdiction against (1) the
Secretary [of the USDA]; (2) the [USDA]; or (3) an agency, office, officer, or employee
of the [USDA].” The Court previously held “that § 6912(e) is nothing more than
‘a codified requirement of administrative exhaustion’ and is thus not
jurisdictional.” 440 F.3d at 999 (quoting Salfi, 422 U.S. at 757, 95
S.Ct. 2457). The Court held that the Producers' failure to exhaust their
administrative remedies is not a jurisdictional bar to review and the court may
consider whether exhaustion is excused under a limited number of exceptions.

The Producers advanced three alternative
arguments as to why they were not required to exhaust their administrative
remedies: 1) further appeal within the USDA would have been futile, 2) their
claim raised a purely legal question, and 3) the Iowa FSA's misconduct
equitably estops the Government from asserting the failure to exhaust defense.

Futility: The Producers argued that their
failure to exhaust should be excused as futile because the NAD lacked authority
to hear their appealability claim, and even if it possessed such authority, the
USDA did not have authority to grant effective relief on the underlying price
election issue. The rule is: “An administrative remedy will be deemed futile if
there is doubt about whether the agency could grant effective relief.” The
Court then used the McCarthy v. Madigan
case from the Supreme Court to provide examples of specific circumstances that
render an administrative remedy futile. 503 U.S. 140 (1992). The Court in this
case then calls the Producer’s argument circular: “By assuming that the price
election issue is one of general applicability, Producers' argument necessarily
makes its conclusion that the question is unappealable. However, the question
of general applicability is what would be at issue had the Producers appealed
the question of appealability to the NAD.”

The Court then analyzed this argument within
the framework of agency discretion. The Court stated that since the ultimate
authority to interpret 7 C.F.R. § 780.5 and determine whether a decision is
appealable lies not with the FSA county committees but with the NAD, the
Producers should have taken the review to the next step. Further, the FSA
county committee decision letters sent to the Producers acknowledged that their
appealability determination is neither final nor dispositive by outlining the
available appeal procedures. The Court held that because the NAD is vested with
final authority to determine whether an issue is appealable, an FSA decision
that an issue is not appealable does not make an appeal to the NAD futile, and
the Producers' attempt to treat the FSA's appealability determination as final
amounts to an end run around the administrative appeal process.

Legal Question: The Producers argued that the
legal question exception excuses their failure to exhaust. Under the legal
question exception, also called the legal issues exception, a party's failure
to exhaust should be excused if the issues “are legal questions which are not
suitable for administrative resolution and are more properly resolved by the
courts.” However, the legal
issues exception is extremely narrow and should only be invoked if the issues
involved are ones in which the agency has no expertise. The Court continues
stating that in requiring exhaustion in cases that call for agency expertise,
the requirement prevents premature interference with agency processes, so that
the agency may function efficiently and correct its own errors. It also
“afford[s] the parties and the court the benefit of [the agency's] experience”
and “complete[s] a record which is adequate for judicial review.” The parties
had offered different principles to apply to this exception.

The Court noted that Congress specifically
vested the NAD with the authority to determine appealability. Through this
appealability review, SURE participants call upon the NAD to draw on its
expertise in interpreting the statutes to determine whether a matter is subject
to further USDA review. The Court held, though, that the Producers did not
avail themselves of that expertise, and by intentionally bypassing the
administrative appeal process and proceeding directly to federal district
court, they undermined the purposes of exhaustion and “premature[ly]
interfer[ed] with agency processes.”

Equitable Estoppel: The Producers argued that
the Government should be equitably estopped from asserting the defense of
failure to exhaust administrative remedies based on allegedly misleading
statements regarding exhaustion contained in the FSA letters and by statement,
a contention squarely rejected by the D.C. Circuit in Deaf Smith, 162
F.3d at 1214. The Supreme Court has warned circuit courts about applying the
doctrine of equitable estoppel to the government. This Court does note, though,
that that does not mean the government is entirely immune. However, It does
increase the burden an opposing party must carry in order to prevail on its
estoppel claim. Therefore, to succeed on a claim of equitable estoppel against
the government, a plaintiff must prove all the elements of equitable estoppel
and also that the government committed affirmative misconduct.

The Supreme Court has imposed a more stringent
standard for estopping the government because there is a strong public interest
in upholding the rule of law, even where hardship may result to individuals in
particular cases. The claimant bears the “heavy burden” of establishing that
the government engaged in affirmative misconduct. If a claimant satisfies the
affirmative misconduct requirement, he then must prove the four traditional
elements of estoppel: (1) a “false representation by the government;” (2)
government intent to induce the claimant to act on the misrepresentation; (3) a
lack of knowledge or inability to obtain true facts on the part of the
claimant; and (4) the claimant's “reliance on the misrepresentation to his
detriment.” Rutten v. United States, 299 F.3d 993, 995 (8th Cir.2002).

The Court held that the Producers failed in
their equitable estoppel claim because they could not prove affirmative
government misconduct. Although no precise definition of affirmative misconduct
exists outside the immigration context, the Eighth Circuit states that case law
makes it clear that affirmative misconduct is something more than mere
negligence. Further, because the Producers were told in their letters that
there was another step to take in their administrative review, the Court held
that the Producers fail on the underlying elements of estoppel.

Thus, the Court held that since the Producers
were unable to demonstrate that any of the limited exceptions to the
administrative exhaustion requirement applied, the district court did not err
in dismissing their suit for failure to exhaust.